The number of demat accounts that were opened in the financial year 2022-23 has come down compared to the previous year. This indicates the lack of confidence among retail investors due to unstable market conditions, lower returns from mid-cap and small-cap stocks, layoffs and other reasons.
MoneyControl citing data from NSDL and CDSL reported that the number of net new demat accounts in FY23 was approximately 2.51 crore, a decrease from the 3.46 crore accounts in FY22. Infact, this is the first time, the net new demat accounts has seen reduction since 2014.
MoneyControl quoted some market experts who said that the slowdown could be due to various reasons, like unstable market conditions, lower returns from mid-cap and small-cap stocks, absence of attractively-priced big IPOs, better interest rates on debt investments, and sustained selling by foreign investors, besides a base effect.
Factors like work from home enabled by easier broking account opening rules, inspired more people to enter stock market trading. However, the Russia-Ukraine war disrupted the supply chain, that increased the commodity prices which in-turn led to inflation. The central banks across the globe went for rate hikes which made fixed-income instruments more appealing and affected the profit margins aross the sectors.
As per data from Bloomberg, the combined average daily turnover in the equity cash segment of BSE and NSE decreased by 20% Rs 57,522 crore in FY23. The turnover was Rs 72,450 crore in FY22. In FY23, though the sensex rose marginally to 0.7%, the Nifty declined 0.6%. Likewise, the BSE midcap lost 0.2% and smallcap lost 4,46%
Less attractive IPOs is also a major factor for the drop in the number of demat accounts. As per Primedatabase.com, Indian corporates raised Rs 52,116 crore in FY23. The previous year, Rs 1.lakh crore was raised by 53 IPOs. This was also an all-time high.
Stringent margin system, has also decreased opportunities for traders with low surplus, leading to a reduction in the number of potential customers for discount brokers. SEBI, last year mandated upfront margin collection, that prevents brokers from providing excessive discretionary leverage to clients. Failure to comply will attract penalities. The rule was enforced on December 1, 2022. Since then, the members are collecting upfront margins from investors.
Layoff across sectors has also prevented investors from opening new demat accounts. As per media reports, about 24,250 employees were laid-off by Indian start-ups so far.